Internal recruiting is the process of filling vacant positions using the company’s own workforce. This is opposed to external recruiting where the positions are filled from outside the company.

Let’s take a look at the process of recruiting internally from a financial perspective to get an idea of the costs and try to figure out which of the two options is better in the long run.

Cost per Hire

This is a great tool for tracking your budget. It’s the average amount of money a recruiter spends on a hire.

To standardize this figure, the Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) created the formula for calculating this cost. It’s simply adding all the recruitment costs (internal and external) and dividing it by the total number of hires [1].

Several people think internal and external recruitment costs include the same fees, but there are several key differences between them.

Differences between Internal and External Recruitment Costs

Internal recruitment costs are all expenses that have to do with the internal employees of the company, as well as the cost of recruiting them for a position. This includes salaries, bonuses, and the cost of interviewing them.

On the other hand, external recruitment costs are expenses that are made outside the company for recruitment purposes. This includes the advertising costs, recruiting software, recruiting events, staffing agency fees, background check service fees, and others [2].

How much does it cost a company to recruit internally?

There are benefits to internal recruitment that can significantly reduce costs. From my experience, members of your company already understand company policies and will probably work with them in mind.

It’s also easier to integrate a recruit into a new team when they’re already familiar with the staff and company culture.

Although this may sound great, some people just think, “Oh! I could ask Brad from HR to take on this extra project. I’m sure it will save me a ton of money” instead of hiring externally. Of course, it can be beneficial to hire internally, however, most jobs hire people for their skillset.

For example, you can train your employee via job shadowing or other education routes, but this can take tremendous time and financial investment.

Let’s take a closer look at the costs of recruiting internally.

Direct costs of recruiting an employee for a position in the company

These direct costs can easily be identified as the total cost spent on internally recruited employees. They include

  1. Recruiter salary The company has to pay the staff that was responsible for recruiting the employees.

  2. Marketing costs The cost of “Digital Recruitment Marketing” is usually between $1,000 and $20,000 monthly. They cover expenses such as social media marketing, online job board fees, and other costs for maintaining a career page online. Even if you choose to hire internally, it’s still standard practice to advertise the job online via the “careers” page.

  3. Screening costs This includes the costs of evaluations, background checks, and just about any relevant screening involved with the recruitment process.

  4. Special packages These packages are incentives such as referral bonuses and internal commissions that might have employees looking forward to the process.

  5. Cost of software required for the recruitment process

    The software used in recruiting employees does cost some money, which ultimately adds to the recruitment costs. However, I do have to mention that using a good applicant-tracking software can help you streamline the hiring process, eliminate unnecessary channels, and ultimately save your resources a bit [3].

Indirect costs of recruiting an employee

These are a bit harder to qualify by the dollar. But tracking them will reveal several ways they cost the company money over time

  1. Time invested in the recruitment process The recruitment team puts in a lot of time to see the process through. The recruiter, HR staff, or any other executive involved in the recruitment process spends valuable time on it.

  2. Decreased productivity levels Recruitment requires time to ensure that a suitable candidate is selected. The team responsible for this might have to keep their other jobs on hold for a while. In the long run, this will set the company back several dollars.

  3. Cost of making a bad choice If a company goes through the rigorous internal recruitment process only to end up with someone who shows a lack of competence over time, they will either train the employee or replace them with another person. Either way, significant effort is already invested, and this could have been allocated to other areas of the business [4].

Outsourcing a company’s hires

Recruitment Process Outsourcing (RPO) is a system whereby the company contracts a third-party staffing agency to take care of their recruitment processes [5].

Staffing agencies are popular among hiring companies for several reasons.

Below are some of those reasons

  1. RPO is more cost-effective It cuts out costs such as those required to pay the team that would have done the internal recruitment.

  2. Three words…“Team of Professionals” A standard staffing agency has access to candidates who specialize in different fields, therefore, a hiring company has a wider range of talents to choose from [6].

  3. RPO saves the company valuable time This contributes to an increase in their productivity levels since they have more time to focus on their primary assignments [7].

  4. It creates the option of employing remote staff These are company employees who work outside the traditional office environment. Staffing agencies provide the option of employing someone from their team of professionals as a remote staff member.

  5. The recruitment process is much faster All the company has to do is give them their specifications, and they will work round-the-clock to find the most suitable candidates.

  6. Reduces the risk of non-compliance with hiring regulations Staffing agencies make sure to comply with hiring regulations of the area. An in-house team may not be equipped to handle such aspects of recruitment and the complications that could arise from them [8].

    It may make more sense for a company - especially startups or small scale businesses who don’t have the luxury of spending too much money to take advantage of staffing agencies for their recruitment needs. Regardless, if companies choose to hire internally or externally, both options offer benefits. Hopefully, whoever is added to the team is worthy of that position.

References

  1. Recruiting costs FAQ: Budget and cost per hire. Nikoletta Bika. Workable. https://resources.workable.com/tutorial/faq-recruitment-budget-metrics. Accessed 21-08-2020.
  2. Cost Per Hire: Why You Should Replace it in 2020. Smart Recruiters. https://www.smartrecruiters.com/resources/glossary/cost-per-hire/. Accessed 21-08-2020.
  3. How Much Does it Cost to Recruit an Employee? Edna Nakamoto. TAM Recruiting. https://www.tamrecruiting.com/blog/how-much-does-it-cost-to-recruit-an-employee. Accessed 21-08-2020.
  4. The Hidden Cost of Recruitment: What’s Recruitment Costing You? Charlotte Shaw. Employment Hero. https://employmenthero.com/blog/hr/recruitment-costs/. Accessed 21-08-2020.
  5. Outsourcing vs. In-House Recruitment: Which is Better? Super Staff. https://www.superstaff.com/blog/recruitment-outsourcing-vs-in-house-recruitment/. Accessed 21-08-2020.
  6. Insourcing vs Outsourcing Recruitment: Which is Best for You? https://www.wepow.com/en/blog/insourcing-vs-outsourcing-recruitment-which-is-best-for-you/. Accessed 21-08-2020.
  7. 7 Reasons to Outsource Recruiting. Andrew Greenberg. Contract Recruiter. https://www.contractrecruiter.com/7-reasons-to-outsource-recruiting/. Accessed 21-08-2020.
  8. 8 BENEFITS OF RECRUITMENT PROCESS OUTSOURCING. The Planet Group. https://theplanetgroup.com/blog/benefits-recruitment-process-outsourcing/. Accessed 21-08-2020.